Advanced Microgrid Solutions and Macquarie Capital have begun the process of raising debt for the second phase of their 50 MW Electrodes battery storage portfolio in California after successfully bringing the first 10 MW portion online.

At the same time, Macquarie is looking to sell down part of its stake in the operational tranche of the portfolio as it seeks to test long-term investor interest in the nascent asset class and recycle capital.

Brian Callahan, a vice president in Macquarie's infrastructure and energy team, is said to be working on the debt raise for phase two of the portfolio, which would finance between 15 MW and 25 MW of storage projects.

The debt is expected to have a 10-year tenor, like the landmark financing of the first 10 MW phase, which was provided by CIT Bank in 2017 (PFR, 3/27/17). The tenor matches the duration of Electrodes' offtake contracts with Southern California Edison.

LONG-TERM OWNER

Dan Cary, v.p. in Macquarie's Green Investment Group, is meanwhile said to be leading the effort to find an investor to take a stake in the 10 MW operational portfolio.

"Macquarie is not known to be a long-term owner," says a deal watcher. "They'll continue to be involved in the second and third tranche but my feeling is a long-term private equity fund, pension fund or strategic will want to own this in the future."

Ontario Teachers’ Pension Plan signed a $200 million equity commitment with a project finance vehicle controlled by another Californian battery storage shop, Stem, in July (PFR, 6/26).

The operational systems, the smallest of which can produce 250 kW and hold 1,500 kWh of storage capacity, while the largest are ten times bigger, are spread across Los Angeles and Orange counties and have two end users.

Three-quarters of the projects serve commercial buildings owned and operated by Irvine Co., while the remaining 25% are sited at Irvine Ranch Water District water treatment plants. The last systems came online in August.

ACCORDION?

The size and pricing of the CIT debt backing the first phase of the Electrodes portfolio, which was shortlisted for PFR’s North America Renewables Project Finance Deal of the Year 2017 (PFR, 2/23), has not been disclosed. The 50 MW portfolio represents a total investment of $200 million.

The next loan will be larger and could be syndicated out to a group of lenders. How much larger depends on the customers AMS lines up, with a deal watcher saying it is expected to be for between $70 million and $100 million. The deal could also include an accordion feature to allow projects to be added after the loan is signed.

How many potential lenders could participate in such a deal remains to be seen, but some bankers have flagged the degradation of battery performance over time as a potential hurdle to financing these types of projects (PFR, 7/5).

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